Source · Select Committees · Treasury Committee
Recommendation 6
6
Paragraph: 38
The OBR states that its central forecast for the path of inflation could be too...
Conclusion
The OBR states that its central forecast for the path of inflation could be too low. Since the Budget, inflation has already significantly exceeded the level forecast by the OBR in October. The Bank of England raised interest rates to bring the rate of inflation back towards its two per cent target, and is likely to increase them further. It is therefore likely that by the next economic forecast, the Chancellor may be faced with significantly higher interest costs than those included within the October economic forecast.
Paragraph Reference:
38
Government Response
Acknowledged
HM Government
Acknowledged
I thank the Committee for their conclusions on the government’s fiscal strategy. The Treasury continues to monitor the risks of higher inflation and interest rates closely, and the Charter for Budget Responsibility now contains a new focus on assessing the affordability of public debt. As the Committee notes, the UK’s high level of debt means we are vulnerable to changes in macroeconomic conditions such as interest rates and inflation, which would increase the amount we spend on debt interest rather than public services. That is why the government has introduced new fiscal rules to help ensure the public finances return to a sustainable footing. Rolling fiscal rules means we can absorb some shocks and adjust fiscal policy as needed, but the government has already made tough decisions which demonstrate our commitment to keep debt under control, such as delivering a long-term, sustainable funding solution for the NHS and reform of the adult social care system.